As Turkish Citizens Vote, Its Leaders Grow Wary of Syria

Turkish citizens went to vote Sunday in an election with a lot at stake.

Istanbul's Arasta Bazaar
Maremagnum | Photographer's Choice | Getty Images
Istanbul's Arasta Bazaar

Since coming to power in 2002, the ruling Justice and Development Party, or AKP, under Prime Minister Reccep Tayyib Erdogan, has been successful in reducing the perceived political risk that was often associated with the country in earlier years. And as much as another victory for the AKP may signal continuity to some investors, it’s only a ’reasonable victory’, market chatter dictates, that could spur a rally in the local stock market, related ETFs abroad and the Turkish Lira as a carry trade favorite.

That basically translates into anything less than 330 seats in the 550-seat parliament, which could possibly force the AKP to shelve its plans for a new constitution in order to transition to a presidential system from a parliamentary one.

Final official results are not expected to be published before June 19.

But if the latest rhetoric is to be lent credence then other troubles loom. With reports of thousands of Syrians crossing the border into Turkey from the East, it poses a renewed foreign policy challenge, and possibly an unwelcome distraction in an already tumultuous Arab World.

The Turkish President, Abdullah Gul, was quoted as saying the government was monitoring the situation closely, and was prepared for “the worst scenarios.”

Reports even emerged last week of plans to create a buffer zone to prevent the instability form streaming into Turkey, which is a NATO and G20 member.

Syria and Turkey share a roughly 800-kilometer long border.

Syria finds itself geographically bordering not just Turkey, but also Iraq, Jordan, Lebanon and Israel.

France and the UK have been pushing for a UN Security Council resolution condemning Syria for the recent violence. But Russia and China, both skeptical of military intervention and the usefulness of such a resolution—as evidenced by the events in Libya—have signaled their opposition.

It’s also bad news for many businesses. Turkey and Syria have enjoyed a cordial relationship that has allowed trade between the two countries to surge.

According to data published on the Turkish Ministry of Foreign Affairs Web site, it’s been a boon for Turkish exporters: From $184 million in 2000, to $1.64 billion last year. The close ties were further underpinned by a Free Trade Agreement (FTA) and lifting visa requirements.

Apart from how foreign investors feel about their money in nearby equity markets such as Turkey and Israel, the fate of Syria, at this point unclear, is likely to have an impact on global energy markets as well.

Samir Kasmi, Head of Energy Commodities at ABN AMRO Dubai told CNBC that a further destabilization would not affect supply and demand.

“But it is another country, similar to Bahrain, which could become a pad for a proxy conflict between Iran and Saudi Arabia. That could have a significant impact on oil prices,” Kasmi said.